Forex Analysis: Dollar May Rise as Fiscal Cliff Fears Sink Confidence

The US Dollar looks set to rise as lingering deadlock in US “fiscal cliff” negotiations weighs on risk appetite and boosts demand for the go-to haven currency.

Talking Points

US Dollar May Rise as “Fiscal Cliff” Impasse Dents Risk Appetite

British Pound Unlikely to Find Lasting Fuel in Retail Sales Report

Japanese Yen Soars as BOJ Opts for Modest Stimulus Expansion

US “fiscal cliff” negotiations continue to dominate attention across financial markets. Divergent headlines have seen markets seesawing throughout the week but the fast-approaching Christmas holiday – the would-be deadline for a deal to emerge – seems likely to create a sense of urgency absent signs of a breakthrough. Indeed, S&P 500 index futures are pointing lower in late Asian trade, hinting a risk-averse mood is beginning to take hold and may begin to drive the safe-haven US Dollar higher.

November’s UK Retail Sales report headlines the calendar in European hours. Expectations point to a 0.4 percent increase compared with a -0.7 percent drop in the prior month. The outcome seems unlikely to yield a significant boost for the British Pound however considering the recovery has been well-telegraphed in an analogous report from the BRC released two week ago.

The Japanese Yen soared in overnight trade, adding 0.7 percent on average against its top counterparts, after the Bank of Japan delivered a stimulus expansion in line with market expectations. Maasaki Shirakawa and company added ¥10 trillion to their asset-purchase program, bringing the total size of the bank’s non-standard easing effort to ¥101 trillion.

The result disappointed hopes for a more aggressive push to the dovish side of the spectrum reflecting the election of Shinzo Abe as Prime Minister over the weekend. Abe campaigned on ending deflation by pushing the BOJ into committing to open-ended stimulus with a goal of hitting a price-growth target of 2 percent.